401k, SEP IRA, Rollover IRA and some more

[mcelwest]

Hi,

Been reading through the various forums as this is not a new topic, but really just looking to bounce my thoughts of folks to ensure I am in the right ballpark.

In 2020 I left my employer (W2) and had contributed just $11k to their 401k. As their 401k does not allow additions after leaving, if I roll this into a Rollover IRA, I presume that I cannot top up into the IRA an additional $8k pre-tax to reach the $19k contribution limit - rather, I am subject then to IRA limits ($6k) and subject to the AGI limits for deduction?

I then set up a SEP IRA as a single member LLC, and can contribute 20% of net earnings (single member LLC), as long as this is done before April 15th 2021 (ignore any filing extensions).

In hindsight, I probably should have set up a Solo 401k to better maximise retirement deductions (20% of net profits as employer, plus contributions as an employee), but the time limit has passed for that...and as such looks like I miss out on $8k of pre-tax deductions.

Does that sound about right?

Is there anything else I am missing re self-employed retirement contributions wherein I can further maximise pre-tax contributions?

TIA,

SM

[MaryK4]

Rollovers are not included in the annual contributions limits- so you do not have to count any of the $11K from your previous employer.  

Your IRA contribution would be limited to $5,500 ($6,500 if you're age 50 or older).- but the Self-Employment SEP would be 25% of the employee's compensation, or $57,000 for 2020 and $58,000 for 2021.

See SEP Plans.

[dmertz · Accepted solution]

@mcelwest , yes, everything you said is correct except that the regular deferral limit for 2020 was $19,500, not $19,000.  Had you set up a solo 401(k) before year end, you could have made elective deferrals from the net earnings from self-employment up to an amount that would bring you to a total of $19,500 of elective deferrals between your former employer's plan and your solo 401(k) plan combined, assuming sufficient net earnings.  With sufficient net earnings beyond the amount of elective deferrals, you could have made the same employer contribution of 20% of net earnings to the solo 401(k) that you can make to a SEP IRA for 2020.

Note that you could establish a solo 401(k) now instead of a SEP IRA and make the employer contribution for 2020 to the solo 401(k), so no need to establish a SEP plan for 2020 and then switch to a solo 401(k) for 2021.  You just can't make an elective deferral for 2020 because the solo 401(k) was not established by year end.  (The election to make the deferral is required to have been made by year end and you can't have made that election to a plan that did not yet exist.)